German Tax Office Finds Possible Fraud in Power Markets

By Julia Mengewein -
May 23, 2013

The German Federal Central Tax Office
has found signs of possible fraud in Europe’s biggest power and
natural gas market that may be similar to the value-added tax
scam that roiled carbon permit markets.

Tax authorities warned market participants of the cases and
the risks of engaging in illegal trading activities, in a
document dated May 2013 and posted on the website of NetConnect
Germany GmbH, the German gas market area manager.
Bundesnetzagentur, Germany’s grid regulator, also posted a
warning on its website.

VAT fraud in the European carbon market involved chains of
bogus import companies set up to reclaim taxes that had never
been paid. A Frankfurt court in 2011 convicted six men for
evading a total of 260 million euros ($335 million) in taxes on
carbon emission trades using the same tactics.

“We are taking this issue for our members and their
customers seriously,” Frank Brachvogel, a spokesman for BDEW,
the Berlin-based lobby group for Germany’s utilities, said today
by e-mail. “BDEW has actively been watching the market for
several years and constantly exchanges information with the
respective authorities and market participants, also on a
European level.”

Germany’s power and gas markets were liberalized in 1998.
About 295 billion euros of German gas and power contracts were
handled by brokers in London last year, according to Bloomberg
calculations based on average prices and volume data from the
London Energy Brokers’ Association.

Biggest Exchange

“All honest market participants must have an interest in
putting an end to wrongdoing by fraudsters as swiftly as
possible,” the tax office said in the document. “The
predecessor of the value-added tax fraud in the energy market
was the VAT fraud in carbon permit trading.”

European Energy Exchange AG, continental Europe’s biggest
electricity bourse, can’t “completely eliminate the
possibility” that its power and gas markets can be misused in
fraud chains, Eileen Hieke, a spokeswoman based in Leipzig,
Germany, said today by e-mail. It hasn’t found any suspected
cases, she said. The exchange is seeking a tax-rule change in
the power and gas markets that would make the buyer responsible
for paying the VAT instead of the seller.

“Some traits of the power and gas trade may make the fraud
attempts in these markets appear especially attractive,” the
tax office said. “It can be expected that also in the power and
gas markets, trades are placed internationally, to also make it
harder to track deals.”

No Knowledge

EnBW Energie Baden-Wuerttemberg AG (EBK), Germany’s third-biggest
utility, has no knowledge of tax fraud in the German energy
market and hasn’t been contacted by authorities, Friederike Eggstein, a company spokeswoman based in Karlsruhe, said today
by phone.

“We comply with all relevant authorities regarding our
trading activities,” Michael Murphy, a spokesman for RWE Supply
and Trading GmbH in Essen, said today by e-mail.

German law allows finance ministries in the federal states
to search offices or premises of companies in the case of
suspicions of tax fraud. Federal finance ministries in Hesse and
North Rhine-Westphalia weren’t immediately available to comment.

Germany’s tax office wasn’t able to provide additional
details of the potential fraud, Annika Deitmer, a Bonn-based
spokeswoman said today by phone.

“According to our knowledge, no concrete cases of fraud
have happened in Germany so far,” BDEW’s Brachvogel said.